The current pensions system of the Republic of Moldova is based on the principle of solidarity between generations, according to which the collected contributions are used immediately to pay the pensions. Such a redistributive mechanism is subject to several risks, both economic and demographic. Particularly, the decrease in the employment rate, labor migration and population aging have had a significant impact on the stability of the system during the past years. This led to taxable basis erosion and simultaneous augmentation of the obligations to pay pensions for pensioners. Since 2009 the deficit of the State Social Insurance Budget (SSIB) is funded by direct transfers from the state budget, which implies significant opportunity costs. This study proposes an optimal model of reforming the current public retirement system based on the long-term demographic forecast and its implications on the sustainability of the pension fund. Based on some actuarial estimations and intertemporal analysis of the system, proposed recently by the IMF, this document analyses the long-term solvency of the public pension fund on the basis of several scenarios: (i) without reform; (ii) increasing the retirement age; (iii) increasing the amount of social insurance contribution; (iv) accelerating the increase of the average salary in the economy and of the employment rate; (v) introducing a cumulative pension system (pillar 2).

Full version is available only in Romanian.

Friday, 12 October 2012 12:12

Real Economy, no.31

The economic stabilization suggested by the Economic Leading Indicator in the previous edition of the Real Economy persisted in August. Therefore, after a continuous decline since autumn last year, the ELI remained stable for two months in a row. As during previous month, the Moldovan economy continues to feel the repercussions from the worsening econoic conditions in the region. These manifest, inter alia, through weaker external demand and tensions building up on the European labor markets. This economic outlook is further undermined by the increased volatility of the global prices for food and oil which threaten to further slash the purchasing power of the population.

Full version is available only in Romanian.

The goal of this Analytical Note is to assess how the draft Law on the 2013 state budget reflects the priorities of the sustainable and inclusive development of the society. In this regards, six sectors were chosen: protection of some vulnerable groups, health, education, culture, small and medium enterprises, and agriculture. Attention was given to several analytic aspects in all these areas. This Analytical Note will be used for the participative process debates and as set of recommendations for the governmental institutions involved in the budgetary process. Moreover, this Note will serve as a starting point in a permanent advocacy process in order to identify and present subjects that should enjoy a larger attention from the part of government institutions.

Full version available only in Romanian.

High incidence of informal employment has characterized the Moldovan labour market  throughout the transition period. But fighting informal employment entered the agenda of the authorities only recently, in 2011, when losses for budgetary revenues generated by this phenomenon were calculated. Informal employment, and especially "undeclared work" and "envelope wages", have become widely discussed topics in Moldova since summer 2011, when the Action Plan to minimize the practice of paying wages in "envelope" and "undeclared work" was approved. This study aims to examine the real causes of this phenomenon, and to determine the factors affecting supply and demand for informal labour. The study offers some calculations on losses for the state budget in 2010 and 2011 from undeclared work and wages and includes policy recommendations to reduce the informal employment involving tax evasion.

Full version available only in Romanian.

The public debate over the need to increase judicial salaries in Moldova in order to improve judicial performance and independence has been one-sided. There is a common sentiment that Moldova judges are being underpaid and thus the difficulties and risks linked to judges' activities are not properly rewarded. The primary argument for rising judicial salaries is that it will improve the quality of judicial decisions and increase judicial independence vis-a-vis the two other branches of power and other interest groups. However, empirical examinations of this issue and simple economic reasoning suggest there is no causal relationship between an increase in judicial pay and the variations in judicial performance. Increasing judicial pay will improve the quality of judges only if judges can be sanctioned for under performing. The sanctioning mechanisms need to be carefully approached because of their influence on judges' independence. Within this perspective or rather trade-off, we propose some measures that go beyond judicial pay in motivating judges to perform adequately and moreover to do not alter judicial independence.

Full version available only in Romanian.

While risks and uncertainties still persist in European and global economy, it seems that the peak had been already achieved and Moldova is currently on its light recovery path from external shocks as our own Economic Leading Indicator has stabilized during the third quarter after a constant fall since October 2011. For the following two – three quarters the main negative repercussions on Moldovan economy will derive from the dramatic situation in the agricultural sector and its implication on food processing industry. The EXPERT-GRUP has revised downwards its GDP growth rate forecast for 2012 to 0.5 percent, and has issued a forecast for 2013 of 3.5 percent growth in the GDP. Our independent assessment is that macroeconomic policies are currently adequate for the short- to medium-term economic growth of Moldova. However, there are two important sectors undermining the functioning of the Moldova economy: justice and education. Reform of the two are imperative for a long-term development and economic growth of Moldova.

Tuesday, 18 September 2012 00:00

Real Economy, no.30

The process of Moldovan economy cooling down during the recent months has stabilized, at least for a short period of time. This stabilization has been attested by the evolution of the Economic Leading Indicator we are monitoring monthly. Obviously, one reason for the economic stabilization is purely arithmetic, caused by the low compairison base. However, the statistical data recently released by the National Bureau of Statistics and Central Bank do confirm an ambiguous evolution of the Moldovan economy.

Full version is available only in Romanian.

In April 2012, has developed and launched the Economic Leading Indicator (ELI), a special analytic tool very useful for the assessment of the economic fluctuations and for anticipation of the short-term shocks. With longer time series provided by the Ministry of Economy and National Bank of Moldova, this document completes the initial analysis by extending the period which initially was used to calculate the ELI, by testing the anticipatory properties of the ELI against the GDP historical data, as well as by applying spectral analysis in order to assess how adequate is the ELI for defining the fluctuations of the Moldovan economy. The analysis underscores the recent economic trends and presents the main risks Moldovan economy faces in the context of ongoing economic troubles in the Euro area and elsewhere.

Full version is available only in Romanian.

Project title: The effects of migration in Moldova and Georgia on children and elderly left behind;

Implementation period: June 1, 2011 – December 30, 2012;

Funded by: European Union;

Partners: Kiel Institute for the World Economy, Maastricht Graduate School of Governance, CIVIS sociological company;

Project goal: The purpose of this project is to carry out a comprehensive quantitative analysis of how labor migration affects the wellbeing of children and elderly people left behind in Moldova and Georgia. Although the economic effects of migration and remittances have been investigated widely, there are few rigorous empirical studies of the impact on the education performance, physical health, and emotional wellbeing of children and the elderly. This project was developed to address these issues, aiming to formulate policy recommendations addressing existing risks and providing support to vulnerable groups.

Main activities:

  • Providing ongoing support to the project, including material, logistical, and linguistic;
  • Contributing to background research and policy reports in Moldova;
  • Advising the project partners on dimensions of research and the development of data collection tools;
  • Arranging meetings with local experts and stakeholders;
  • Holding consultations with these bodies when necessary;
  • Briefing select stakeholders on project progress and activities;
  • Coordinating the high-level stakeholder meetings;

Main outputs and outcomes:

  • Sociological survey on children and elderly left behind;
  • A descriptive and readable (for non-experts) report on the survey results;
  • Final report with conclusions and policy recommendations;

Project impact:

Before this project, there were no comprehensive studies measuring the impact of labor migration on children or elderly left behind in Moldova. Existing studies use qualitative research methods or small samples. While they throw light on the situation of particularly vulnerable individuals, they permit no encompassing assessment. This project filled these gaps through a nationally representative survey of close to 4,000 households that generated rich information on the determinants of the wellbeing of children and elderly in Moldova. In addition, the project helped identifying vulnerable groups of children and elderly irrespective of whether there are migrants in their households. This project also conducted qualitative research to explore in more detail the channels through which migration impacts vulnerable individuals. On this basis, several areas where policy interventions may be appropriate were suggested by this project.

Project title: Consolidating participation of civil society in decision- and policy-making processes;

Implementation period: June 10, 2012 – June 10, 2014;

Funded by: East-European Foundation;

Partners: Organizations-members of the Working Group Economy, Finance and Business Environment of the National Council for Participation;

Project goal: The key goal of this project is to educate the central governmental agencies the culture of consulting and of involving the civil society in the process of developing, monitoring and evaluating Governmental policies. This project is a joint initiative of the organizations composing the National Council for Participation, with EXPERT-GRUP being responsible for the part of the project related to the Group on Economy, Finance and Business Environment of the NCP. At the same time, this project serves to consolidate the capacities of the NCP members and their constituencies to influence economic policies and will foster the sector-level expertise that NCP members have;

Main activities:

  • Mapping out the Governmental decision-making processes on the issues of interest for the Group on Economy, Finance and Business Environment;
  • Promoting new subjects on the Government agenda, actively participating in various working groups and collegial bodies of ministries;
  • Monitoring the most important strategies and plans of actions;
  • Intervening on subjects and issues present on the Governmental agenda, in order to raise awareness about the policy risks and opportunities;

Main outputs and outcomes:

  • Policy processes mapping-outs;
  • Analytic reports on subjects relevant for the Government agenda;
  • Evaluation reports of strategies and Governmental programs;

Expected project impact:

As a result of this project, the NCP will become a framework of expression and involvement, which would be visible and attractive for Moldovan civil society organizations. NCP will become a viable and valued partner of the Government in the preparation and evaluation of policy. At the same time, we anticipate that this project will help NCP become a tool for effective and transparent promotion of the public interests.

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